Bond market continues to flex its muscles

Headlines from Bank of Japan Governor Kuroda are crossing but the main voice in the USD/JPY market is bonds. Rising Treasury yields are helping to underpin a two day rally in the pair.

The gains have cut through a minor downtrend since early in the month. USD/JPY now has some breathing room ahead of the 21-day moving average at 116.11.

The highs so far were above the Jan 12/13 highs and the Jan 5/6 lows. That's encouraging for the bulls.

The danger is whippy dollar moves ahead of the inauguration. There is some apprehension about what Trump could say. It's generally meant to be an inspiring, unifying speech but Trump is a wildcard and could use it to attack his enemies or lay out priorities.

The paradox is that he could advocate for policies that will drive US dollar gains while also lamenting the strength of the US dollar. Further, he could spark risk aversion and that will spark dollar gains.

The inclination from traders may be to head to the sidelines before the close on Friday. That would mean USD selling because speculators are heavily long USD.